19 March 2019 - Article
H. L. Hunt – once the richest man in the world – would not be a happy man if he were alive today. In a very public and ugly court battle currently proceeding in Dallas, Hunt’s grandson, Al Hill III, has sued his father, relatives and family retainers. He accuses them of conspiring to destroy family trusts, sell off Hunt Petroleum, the family’s main asset, and steal the value of the trusts’ assets. He is suing either to set aside a number of family trusts, or to have his relatives removed from trust boards, or to crack open some of these trusts to give him a bigger share. He has even charged his father with civil conspiracy to defraud him by use of the mails.
The Hunt family is not alone. Over the last ten years or so, a large number of the most prominent American families have attempted to resolve distressing family issues in a very public and very expensive forum: the courthouse. Ironically, after literally spending fortunes, families often
belatedly come to their senses and settle out of court – a course of action they could have considered at the outset.
Many of the juiciest headlines are related to divorce, as we have seen recently.
Another major source of family discord is generational distance. As links with the origins of the fortune and identification with family values weaken (along with a meaningful involvement with a family business), it becomes more tempting for younger family members to resort to
litigation to achieve a degree of gratification.
It is tempting to see this rush to justice as an American phenomenon; unfortunately, the disease is ubiquitous. In the United Kingdom, the Marlborough family (whose members included Winston Churchill) have seen some of their own dirty laundry dragged through the press when court action was necessary to deal with a family member with a substance abuse problem.
In the civil law countries of Europe and the Shari’a countries of the Middle East, the distribution of assets at death is mostly defined by law, and only when these rules are breached can children mount such a claim – but not always. The children of the scion of a very wealthy family
in Saudi Arabia went to court in some five countries with respect to these sorts of issues.
Today, two important issues before the courts (aside from divorce-related matters) are: first, accounting for the payment and distribution of
the wealth, and second, ugly contests to control family fortunes where these issues have been preordained in wills or trusts, but where the
control mechanisms have either failed or have not been sufficiently robust; or both, as in the Hunt family litigation.
Classic allegations that accompany major family litigation may include: refusal to divulge information about a trust, self-dealing, attempts to dispose of the family business, and allegations of cover-ups going back many generations. The headlines are large and so are the legal fees, but it brings no honor to the family.
These sad and undignified battles over power and money are occurring with greater frequency. Is there a cure? There are several, but there are no guarantees that they will work. In the divorce arena, the use of prenuptial agreements and trusts can often prevent disaster (although in such jurisdictions as the United Kingdom, they are not generally recognized and may or may not be honored by the courts). Even when they are effective, the instruments need to be carefully drawn and clever plaintiffs will often search for a sympathetic forum, or even attempt to go after the draftsman of the document. The use of properly drawn family instruments such as trusts may be effective; but to be successful over generations, they must be flexible, so that as circumstances change, so can the documents in question. Generally, where a family trust
is properly drafted, a younger generation beneficiary with only limited discretionary access to trust funds may be immune from the threats of a challenging spouse, and reasonable settlements are more likely.
To avoid public and traumatic family conflict, some of the most effective tools may not be legal ones at all. One of the most valuable is the formation of a family council, keeping younger members informed on family matters and giving them a sense of inclusion. Many family disputes arise when younger members feel excluded, unfairly treated or left in the dark. Thoughtful families will create educational programs for the younger generation, passing along family values and removing the element of mystery surrounding the family fortune.
Where there is a family business, regular information dissemination and family meetings can often undercut the desire to take a shot at management. Finding balance is hard, however. Information and inclusion are powerful tools; but sadly, in some cases exclusion may be the only option.
Transparency is important. Where there is regular access to information and regular communication between generations, disputes are less likely to arise. There is, of course, a delicate balance between necessary communication and disclosure of a family’s most confidential information. But where family members are kept informed in a general way, they can be provided with more sensitive information as needed.
Our firm assists in setting up structures for family governance that allow each member to claim a place at the table and help families to resolve differences before they become toxic enough to tempt family members to resort to litigation.